VC Acquisitions Paper

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This page details the work rebuilding Brander Egan (2007) - The Role of VCs in Acquisitions in to a new paper for our submission to the RCFS special issue and associated conference.

Connect to the Postgres database (inside the Berkeley network only) with:

psql -h -U ed_egan Acqs

Current Status

This paper was submitted (dual submission) to the 3rd Annual Entrepreneurial Finance and Innovation Conference (EFIC) conference and the Review of Corporate Finance Studies (RCFS). It was rejected from both.

The key points from the reviewers were:

  • We should explain how we get a different result from Masulis and Nahata (2011), who find a +3% return premium to VC-backed acquisitions
  • We should use our continous measures of IA (i.e., look to find a monotonic effect). And consider within-industry acquisitions to see whether this mitigates IA problems.
  • To back up the winner's curse we should consider the number of competing bidders.
  • Possibly we should consider long rum performance and attempt to explain why the acquirers buy VC-backed firms.
  • Focus less on the univariate results.

The obvious possibilities for this paper are to:

  • Focus more on the IA.
  • Do a supply-side VC analysis (i.e., include reputations, the possibility of grandstanding, etc.)

The immediate 'to do' is:

  • Read the Masulis and Nahata (2011) paper carefully.
  • Do a proper literature review again!

Lit Review

The main VC Acquisitions Lit Review page details searches for papers related to the intersection of venture capital, acquisitions and explaining abnormal returns.

There are seperate lit reviews for related topics, such as:

The key papers found were:

Comparing Results

Comparing our CARs with those from the literature (some values are inferred - see the review pages)

                      Our Paper   M&N'11   G&X'06   G&X'08   B&Z'10
Data Range            80-'10      91-06    90-01    92-06    80-03     
Model                 Mkt         Sub      Mkt      Mkt      Mkt
  Private Target      0.7%        4.8%     1.5%      NA      NA   
  VC                  0.3%        6.3%     0.6%     0.7%     0.7%   
  Non-VC              0.8%        3.4%     1.6%      NA      NA

With Controls
  VC indicator        0.5%        2.7%     0.3%
  Target Ind. Q                   4.8%
  Related                                  0.5%
  R2                  1.6%        4.3%     1.6%
  N                   22,961      490      8693     1261    489

Note that using the subtraction model our univariate results are: 0.95% (all), 0.98% (Non-VC) and 0.59% (VC).

Latest Version

The latest version of the paper is:

Note: This version was submitted to the both the EFIC and RCFS.

The current reference is:

  • Brander, James A., and Edward J. Egan (2012), "Investor Expectations and the Role of Venture Capitalists in Acquisitions: Bargaining and the Winner’s Curse", Working paper, March 2012, under review for inclusion in the Third Entrepreneurial Finance and Innovation Conference and a special issue of Review of Corporate Finance Studies.

Submission Details

This paper was submitted under the dual-submission process to both the 3rd EFIC and the RCFS on March 7th.

The Third Entrepreneurial Finance and Innovation Conference (EFIC) on June 10th-11th in Boston, MA, is supported by the Kauffman Foundation and the Society for financial studies. Conference papers will be considered for inclusion in a special issue of the Review of Corporate Finance Studies (RCFS).

The conference details are here:

Authors will be notified if their paper has been selected by the end of April. The program committee includes: Thomas Hellmann, Adam Jaffe, Bill Kerr, Josh Lerner, David Robinson, Morten Sorenson, Bob Strom, and others.

Rebuilding the Paper

The paper required a complete rebuild of all the results, with the data updated to the end of 2011. We can also consider several extensions to the paper, detailed in a later section.

Dataset Processing Notes

  1. The acquisitions data was retrieved from SDC (see below) and imported into Postgres. There were 41,572 records.
  2. The flag variables were reviewed for variation - some had no bite (e.g. Spinoff, TwoStepSpinOff, and Splitoff) and were ignored. Others led to data being discarded as flag exclusions.
  3. All variables were checked for coding, range, dispersion, etc.
  4. Restriction were placed on the data (Completion, flags, exclude LBOs) etc. This reduced the data to 40,035 observations
  5. Certain variables were reprocessed, e.g. Percentage Shares, NAIC codes, etc. (see below)
  6. Acquiror and Target names were keyed to account for repetitions etc.
  7. Duplicate acquisition data (same event) was eliminated
  8. Multiple acquisition of the same target (i.e. a target is acquired, spun-off and acquired again, etc) were eliminated.
  9. CUSIPs were processed into 6, 8, and 9 digit variables, by searching COMPUSTAT annual data (Jan 1978 - Jan 2012) using the 6 digit CUSIP and then finding the correct 9 digit CUSIP for a particular issue-year. Note that a 9 digit CUSIP is a 6 digit Issuer Number, a 2 digit Issue Number, and a check digit. CRSP uses 8 digit Cusips. There were 27,401 acquisitions with 7,348 valid CUSIPs.
  10. CRSP data was retrieved and processed (see below). After processing we had data for 23,802 observations.
  11. COMPUSTAT data was retrieved and processed (see below)
  12. VC PortCo data was retrieved and processed. PortCos were flagged and portco data added for appropriate observations.
  13. LBO data was retrieved and processed. 164 observations were discarded.
  14. Acquisition Histories were calculated as number of past acquisitions for each acquirer: Total, VC only, Non-VC only
  15. Accounting vars were converted to 2011 real values using the official BEA implicit GDP price deflator index:
  16. Percentage variables were multiplied by 100 to get nice coefficients
  17. Every observation was assigned a unique observation number (obsno)
  18. Compound variables such as horiz,vert, and cong were calculated.

Variable check notes:

  • 1,514 had estimated announce dates. These were flagged.
  • 443 had their transaction value amended. These were flagged.
  • 41,473 had a deal code of 'C' for completed. These were kept.
  • The number of bidders was always disclosed and 2 in 54 cases and 3 in 2 cases.
  • Number of considerations offered and sought varied from 1 to 8
  • State codes were USPS official standards:
  • There was data from 35 stock exchanges. 32,177 observations recorded Amex, Nasdaq or NYSE.
  • 25 acquirors were LBO firms and 3 targets were LBOs These were excluded.
  • All acquirors and targets had 6 digit NAIC codes, though some were truncated e.g. 517000 and others invalid. COMPUSTAT NAIC codes were used when SDC NAIC codes failed when these were recorded in WRDS.

Flag Exclusions:

  • Cases where the target was bankrupt or distressed as indicated by: TargetBankrupt, TargetBankInsolvent, Liquidation, Restructuring.
  • Cases where the form wasn't genuinely privately-held as indicated by: OpenMarketPurchases, GovOwnedInvolvement, JointVenture, Privatization (which capture government sales).
  • Cases where there was a share recap going on concurrently with the acquisition: Recap
  • Targets that had LBO involvement (more will likely be removed in the next phase of matching to LBO targets): LBO, SecondaryBuyoutFlag, ReverseTakeOver (used for LBO'd firms doing a reverse take over), IPOFlag (likewise).
  • Firms where the deal began as a rumor (so the information leakage is problematic): DealBeganAsRumor

Processing of variables:

  • The original announce date was determined as min{announcedate, announcedateorg}. Those where annoucedate \ne announcedateorg were flagged.
  • Percentage stock, cash, other and unknown were reprocessed to include data from the ConsidStruct field, which tags Stock Only, Cash Only, etc.
  • State codes were reprocessed to numerics using the lookup table below
  • IT, BT (Biotech), HT (Hightech) and NAIC1, NAIC2, NAIC3, Indu1, Indu2, Indu3 variables were created using the lookup tables below (see the variable descriptions for more info). Note that the IT, BT and HT variables were coding using aggregate codes whereever possible (i.e. 517110, etc, all appear in IT and cover the 517 code entirely, so the 517 block would be coded as IT even if SDC recorded the code as 517000.

Acquisitions Data

SDC Search Criteria

SDC search criteria:

  • US Targets
  • Announced: 1/1/1980 to 12/31/2011
  • Target Nation: US
  • Acquiror Nation: US
  • Target Status: Private (V)
  • Acquirer Status: Public (P)
  • Percentage of Shares Owned after Transaction: 100 to 100 (will exclude those with missing data)

SDC Variables

The following variables were pulled:


This provided (of particular note):

  • Target Name
  • Acquirer Name
  • Transaction Value
  • Payment Method
  • Acquisition announcement date
  • Payment method (cash/stock/mix)
  • PC of stock in the deal
  • No. of bidders
  • Acquirer CUSIP
  • Target NAIC
  • Acquirer NAIC
  • Age (of target)
  • Sales (of target)
  • Leverage (of target)
  • Intangible Assets (of target)

New Flags in SDC (downloaded for exclusions):

  • Bankruptcy Flag
  • Failed bank Flag
  • Leveraged Buyout Flag
  • Reverse LBO Flag
  • Spinoff Flag
  • Splitoff Flag
  • Target is a Leveraged Buyout Firm
  • And many others. These will be reviewed and excluded.

Other Notes:

  • Founding year/Age of the Target was not available in the data. It is in VE for VC-backed only.
  • The street address is multiline and problematic if included. This can be drawn seperately if needed. We have the City, Zip and State, which is sufficient to get a Google Maps lookup. Likewise 'Competing Offer Flag (Y/N)', also known as COMPETE and Competing Bidder, is a multiline - with each presumably corresponding to a different bidder identity. It was excluded.
  • The script uses the spacing in the header to determine the column breaks. The EquityValue column has two spaces in front of its name that screws this. Both EquityValue and EnterpriseValue needed to be imported as varchar(10), as they have the code 'np' in some observations.
  • The script was modified so that it only drops commas in numbers and not those in names etc.


Daily return data was downloaded using 8 digit CUSIPs from CRSP. The following variables were retrieved from 1/1/1978-1/1/2012 (the latest month available):

  • Cusip
  • Date
  • prc
  • ret
  • vwretd

The data was processed:

  1. Announcedays were coded to the current or next following trading day.
  2. Trading days were indexed from the announcement day (day 0) for all announcement-cusip pairs.
  3. A refined estimation set beginning 280 and ending 30 days before the acquisition was extracted for each announceday-cusip pair
  4. Cusips with multiple announcements on the same day had these announcements flagged and a unique announceday-cusip pair index (acqno) was created

announceday-cusip pair observation were included in an estimation regression provided that there were 50 continuous trading days ending at day -30.

  • The parameters. errors and statistics from the regression, particularly [math]\hat{\alpha_i},\hat{\beta_i}[/math], were estimated for each announceday-cusip pair in the following regression:

[math]R_i = \hat{\alpha_i} + \hat{\beta_i}R_m + \epsilon[/math]

  • Days from -5 to +5, to allow for an 11 day window, were extracted into an event window and processed to produce:
    • [math] AR_i = R_i- (\hat{\alpha_i} + \hat{\beta_i}R_m) [/math]
    • [math] AR^S_i = R_i - R_m [/math]
    • Let [math]\epsilon[/math] be the residual from the mkt model regression. Then calc: [math]\sigma_{\epsilon}={( \mathbb{E}(\epsilon - \mathbb{E} \epsilon))}^{\frac{1}{2}}[/math]
    • RMSE of the Mkt Model: [math]RMSE={( \mathbb{E}(X- \mathbb{E} X))}^{\frac{1}{2}}[/math] - this is in the ereturn list in STATA and will be used for the Patell Standard Errors.
  • Then other variables were calculated or included:
    • The cummulative return [math]CAR_i = \sum_t AR_i[/math]
    • The price 30 days before the acquisition was recorded for the market value calculation


From COMPUSTAT we drew accounting variables for all of our Cusips, then extracted data for the announcement years and the lagged announcement years. (Note that Cusip, NAIC, datayear, fiscal year and fiscal year end were included in the download. NAIC was used to supplement SDC NAICs.)

Data included:

  • Total Assets
  • Market Value
  • Sales
  • Total Liabilities
  • Intangible Assets
  • Shares Outstanding

Note that leverage was calculated as: [math]Leverage=\frac{Total\;Liabilities}{Total\;Assets}[/math]

Variables were translated to 2011 dollars and marked varname11, lagged (minus one year) variables were recorded as varname_m1. In STATA log variables were created as varnamel.

The VC PortCos

The following criteria was applied to the SDC search:

  • Moneytree deals (i.e. VC only)
  • Company Nation: US
  • Round date: 1/1/1975 to 1/1/2012

A basic variable set was downloaded including:

  • PortCo Name
  • Nation
  • State
  • Location
  • Address
  • Total VC Invested
  • Date of First Inv
  • Date of Last Inv
  • Date of Founding
  • No Rounds

Check flags:

  • Moneytree
  • Venture Related

The data was reprocessed, specifically:

  • Unique PortCo Names were determined using Names, States and Location data to determine unique portcos.
  • Duplicate records were eliminated
  • Discontinuous (multiple) records (pertaining to the financing history of a single firm) were assembled into single records
  • PortCos were matched to Acquisition Targets using name based matching, checking state and location information.
  • In a small number of cases VC appears to continue after the acquisition. This is almost surely an error in VE, but these obserations are flagged.

Note: The coverage of VE before 1980 is problematic, so we will discard acquisition records before 1985 in STATA before the analysis.

Removing additional LBOs

A set of LBO portcos were downloaded from SDC using the flags LBO=yes, PWCMoneytree=No, StdUSVentureDisbursement=No The LBOs were matched against the acquisition targets and removed (LBO initial investment dates were checked).

Processing NAIC Codes

While SDC provide 6 digit NAIC codes for all acquirers, some of these NAIC codes are invalid (proprietary to SDC). These were replaced with COMPUSTAT NAIC codes whenever available. The SDC NAIC codes found were:

 SDCnaic    |                SDCindustry
 BBBBBA     | Miscellaneous Retail Trade
 BBBBBA     | Business Services
 BBBBBA     | Advertising Services
 BBBBBA     | Prepackaged Software
 BBBBBB     | Business Services
 BCCCCA     | Investment & Commodity Firms,Dealers,Exchanges
 BCCCCD     | Investment & Commodity Firms,Dealers,Exchanges
 BCCCCD     | Business Services
 BCCCCD     | Social Services
 BCCCCE     | Investment & Commodity Firms,Dealers,Exchanges

Details of the IT, BT, and HT codes are below.

An acquisition was classified as:

  • Vert if acquirornaic6=targetnaic6
  • Horiz if acquirornaic6=targetnaic6 AND acquirornaic5!=targetnaic5
  • Cong if !Vert AND !Horiz
  • Related if Vert OR Horiz

Patent Data

NBER patent data with assignee names from 1975-2006 was used to add patent counts to the data. Only patents filed before the annoucement date were included. Assignee names were matched to target names by name matching software, with matches validated by hand. A patent count and 'has patents' variable (patents) were generated and a flag was added to recorded that have their acqusition announcement before 2006. Targets acquired after 2006 have their patent applications up to and including 2006 recorded, though these numbers will as their true counts are right-truncated. Likewise, a target may have existed and made patent applications prior to 1975, resulting in left-truncation. Therefore year fixed-effects are warranted.

Patents and Information Asymmetries

Patents might act to certify their patent-holders in the face of information asymmetries (see, for example, Hsu and Ziedonis, 2007). Thus firms with acquirers of targets with patents might value the certification of a venture capitalist less than when they consider targets without patents. Likewise, on average about 2/3rds of all patent citations are added by examiners (Alcacer and Gittelman, 2006 and Cotropia et al., 2010). Thus citation counts might represent the search costs associated with finding information about patents. That is, patents with more citations are the ones that are easiest to find, and so mitigate information asymmetries the most successfully.

Note: I am working on the 2011 update to the NBER patent data (see: but this will NOT be done before the March 7th deadline.

Analyis Calculations and Notes

The following is performed on the dataset before analysis:

  • Observations were dropped if yearann<1985, to give 5 years of VC data before the announcement
  • asize = market value + lagged liabilities
  • rsize = tv/asize
  • log variables were calculated as log(1+var)
  • The following aliases were created:
    • tit -> it
    • tbt -> bt
    • tht -> ht (?)
    • yearann -> year
  • Interaction effect variables were created
  • Year x anaic2 (2 digit acquiror naic) fixed effect indicators were created
  • CARM variables (Market Model CAR) were created for the 7 day window for the figures
  • Vscore variables were created for the significance tests on CARS using the RMSE from the estimation window: [math]vscore = \left| \frac{carm}{\left( \frac{rmse}{\sqrt{n}} \right)} \right|[/math]. This was done on a per group basis, using the variable names xgroupvar, where group=it or itvc or null.
  • Year range variables from 1 to 6 were created for years 1985-1989, ... , 2005-2009, 2010-2011.
  • In the regression analysis we clustered standard errors on acqno (the cusip-announceday pair that could have multiple acquisitions, marked with sameday=1), using STATA's vce(cluster clustvar) documented here:


  1. The experience variables (# Previous Acqs) are generated using the primary data, and will be truncated by the start of the dataset. We should probably consider year fixed effects to mitigate any induced bias.
  2. In the previous version of the paper we threw out cases when the mkt value of the acquirer was 'very small' relative to TV.
  3. Boom is defined as: [math]1990\le year \le 1999[/math]
  4. The Boehmer standard errors are the cross-sectional ones generated by OLS. Clustering them isn't part of the specification, but clearly should be done.

Supplementary Data

To determine the information asymmetry ranking of sectors again we will need (either for 1 year or across the entire year range 1985-2011):


  • idiosyncratic volatility of stock returns: requires returns and mkt returns
  • relative trading volume (this appears to be called TURNOVER, as opposed to absolute volume which is VOLUME. The measure should be relative to the exchange's trading volume)
  • NAIC


  • intangible assets
  • total assets
  • Tobin's Q: Market value/book value of assets
  • NAIC


The following is quick description of the variables in the Version 3 dataset.

Acquisition Specific Variables

Note: All variables ending "11" are amounts in 2011 dollars

  • acqno: The acquisition number (an index)
  • dateann: Date announced
  • dateannisest: Whether the date announced is estimated
  • yearann: Year announced
  • boom
  • yearcomp: Year completed
  • dateeff: Date Effective
  • tv: Transaction Value
  • tv11
  • enterpriseval
  • enterpriseval11
  • equityval
  • equityval11
  • valueamended: Whether the Value was amended
  • valueamendedupdown: Whether the amendment was Up (1) or Down (0)
  • valueest: Whether the transaction value is flagged as estimated
  • factor: The real dollar adjustment factor for the year of the acquisition
  • factor_m1: The real dollar adjustment factor for the previous year
  • mergerofequals: Whether SDC flags this as a merger of equals
  • nobidders
  • challenged: Whether the deal was challenged (an SDC flag)
  • noconsidoffer: Number of considerations offered
  • noconsidsought: Number of considerations sought
  • pccash: percentage of cash in the deal
  • pcother: percentage of other considerations (not cash/stock) in the deal
  • pcstock: percentage of stock in the deal
  • pcunknown
  • horiz
  • vert
  • cong

Estimation and Event Window Variables

Note: for return variables, _m indicates minus and _p indicates plus days, so that r_m1 is the return on the stock at day minus 1, where 0 is the announcement day or the first trading day following the announcement if the exchange was closed when the announcement was made.

  • alpha: The constant from the estimation regression
  • beta: The coefficient on the market return from the estimation regression
  • prc: The stock price 30 days prior to the announcement
  • rmse: The RMSE from the estimation regression

Returns for the stock (single period buy and hold, including dividends):

  • r_0
  • r_m1
  • r_m2
  • r_m3
  • r_m4
  • r_m5
  • r_p1
  • r_p2
  • r_p3
  • r_p4
  • r_p5

The corresponding market returns on the Value-Weighted Amex-Nasdaq-NYSE composite (including dividends):

  • m_0
  • m_m1
  • m_m2
  • m_m3
  • m_m4
  • m_m5
  • m_p1
  • m_p2
  • m_p3
  • m_p4
  • m_p5

Abnormal returns calculated using the market model:

  • arm_0
  • arm_m1
  • arm_m2
  • arm_m3
  • arm_m4
  • arm_m5
  • arm_p1
  • arm_p2
  • arm_p3
  • arm_p4
  • arm_p5

Abnormal returns calculated using the subtraction method:

  • ars_0
  • ars_m1
  • ars_m2
  • ars_m3
  • ars_m4
  • ars_m5
  • ars_p1
  • ars_p2
  • ars_p3
  • ars_p4
  • ars_p5

The three day cummulative abnormal return (market model):

  • carm_3

Acquiror Specific Variables

Note: Again "11" indicated values in 2011 dollar, but _m1 indicates the previous year for the annual accounting variables.

  • aname: The acquiror name
  • astate: A numeric code for the acquiror state (there is a lookup table)

Whether the acquiror is an IT or Biotech firm (binary):

  • ait
  • abt

Acquiror NAIC codes and Indu codes. 1 indicates 1 digit, 2 is 2 digit, and 3 is 3 digit. The indu variables have IT and BT taken out an recoded as 10&11 for 1 digit, 100&101 for 2 digit, and 1000 & 1001 for 3 digit.

  • anaic
  • anaic1
  • anaic2
  • anaic3
  • aindu1
  • aindu2
  • aindu3

The count of previous acquisitions occuring strictly before the announcement:

  • noprevacqs
  • noprevacqsnonvc
  • noprevacqsvc

Various acquiror accounting variables, for the year of the acquisition and lagged:

  • assets
  • assets11
  • asset11_m1
  • asset_m1
  • intangibles
  • intangibles11
  • intangibles11_m1
  • intangibles_m1
  • leverage
  • leverage11
  • leverage11_m1
  • leverage_m1
  • liabilities
  • liabilities11
  • liabilities11_m1
  • liabilities_m1
  • mktvalue
  • mktvalue11
  • mktvalue11_m1
  • mktvalue_m1
  • mv: Market value calculated using the shares outstanding and the price 30 days before the announcement.
  • mv11
  • sales
  • sales11
  • sales11_m1
  • sales_m1
  • sharesout: the number of shares outstanding
  • sharesout11: a fake variable to construct mv11
  • sharesout11_m1
  • sharesout_m1

Target Specific Variables

  • tname: Target name
  • tstate: A numeric code of state (same lookup as acquiror)

The IT, Biotech and NAIC/Indu variables, constructed the same as for the acquiror:

  • targetit as tit
  • targetbt as tbt
  • tindu1
  • tindu2
  • tindu3
  • tnaic
  • tnaic1
  • tnaic2
  • tnaic3

The VC variables:

  • vc: A binary variable - 1=VC backed, 0 otherwise
  • firstinvdate
  • lastinvdate
  • norounds
  • totalinvested
  • totalinvested11
  • vccontafteracq: Whether VC investment appears to continue after the acquisition is supposed to have completed
  • foundingdate

Target Accounting Variables

  • targetcommonequity
  • targetcommonequity11
  • targetintangibles
  • targetintangibles11
  • targetnetsales
  • targetnetsales11
  • targetrandd: R&D
  • targetrandd11
  • targettotalassets
  • targettotalassets11
  • targettotalliabilities
  • targettotalliabilities11

Additional Variables

The following variables have now been added to the data:

  • aht: Uses our HT definition that does not included IT or BT, on the acquiror's NAIC code
  • aht_pb: Uses the Paytas-Berglund definition of HT
  • aht_hecker: Uses the Hecker definition of HT
  • aht_pb_notitbt: Uses the Paytas-Berglund definition of HT, but removes IT and BT
  • aht_hecker_notitbt: Uses the Hecker definition of HT, but removes IT and BT
  • tht: The same as above but on the target's NAIC code. THIS IS THE ONE YOU WANT FIRST.
  • tht_pb
  • tht_hecker
  • tht_pb_notitbt
  • tht_hecker_notitbt
  • patents: A binary variable indicating whether the firm has patent (1) or not (0) applications filed up to an including the year of the announcement of the acquisition
  • patentcount: The count of the above patents
  • patentdata: Takes the value 1 if the announcement year equal to or less than 2006, so the firm can have all of its patents recorded (from 1975 forward), and 0 if the patent data will be inherently truncated.

State Codes

We use the US Postal Service (USPS) Official State Codes, found at:

OfficialCode	NumericCode	State

Classifiction of IT, BT and HT

Information and Communications Technology (IT)

The following is our definition of IT:

333295	both	333295  Semiconductor Machinery Manufacturing  
3341	both	334111  Electronic Computer Manufacturing  
3341	both	334112  Computer Storage Device Manufacturing  
3341	both	334113  Computer Terminal Manufacturing  
3341	both	334119  Other Computer Peripheral Equipment Manufacturing  
3342	both	334210  Telephone Apparatus Manufacturing  
3342	both	334220  Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing  
3342	both	334290  Other Communications Equipment Manufacturing  
334413	both	334413  Semiconductor and Related Device Manufacturing
334611	both	334611  Software Reproducing  
334613	both	334613  Magnetic and Optical Recording Media Manufacturing  
33592	both	335921  Fiber Optic Cable Manufacturing  
33592	both	335929  Other Communication and Energy Wire Manufacturing  
42343	both	423430  Computer and Computer Peripheral Equipment and Software Merchant Wholesalers  
42511	both	425110	Business to Business Electronic Markets
44312	both	443120	Computer and Software Stores
4541	both	454111  Electronic Shopping  
4541	both	454112  Electronic Auctions  
4541	both	454113  Mail-Order Houses  
5112	both	511210  Software Publishers  
516	2002	516110  Internet Publishing and Broadcasting  
517	both	517110  Wired Telecommunications Carriers  
517	both	517210  Wireless Telecommunications Carriers (except Satellite)  
517	2002	517211  Paging  
517	2002	517310  Telecommunications Resellers  
517	both	517410  Satellite Telecommunications  
517	2002	517510  Cable and Other Program Distribution  
517	2002	517910  Other Telecommunications  
517	2007	517911  Telecommunications Resellers  
517	2007	517919  All Other Telecommunications  
518	2002	518111  Internet Service Providers  
518	2002	518112  Web Search Portals  
518	both	518210  Data Processing, Hosting, and Related Services  
51913	2007	519130  Internet Publishing and Broadcasting and Web Search Portals  
51919	both	519190  All Other Information Services  
5415	both	541511  Custom Computer Programming Services  
5415	both	541512  Computer Systems Design Services  
5415	both	541513  Computer Facilities Management Services  
5415	both	541519  Other Computer Related Services 
61142	both	611420  Computer Training  
811212	both	811212	Computer and Office Machine Repair and Maintenance
811213	both	811213  Communication Equipment Repair and Maintenance

Biotech (BT)

The following is our definition of Biotech:

3254	both	325411  Medicinal and Botanical Manufacturing  
3254	both	325412  Pharmaceutical Preparation Manufacturing  
3254	both	325413  In-Vitro Diagnostic Substance Manufacturing  
3254	both	325414  Biological Product (except Diagnostic) Manufacturing  
334510	both	334510  Electromedical and Electrotherapeutic Apparatus Manufacturing  
334516	both	334516  Analytical Laboratory Instrument Manufacturing 
334517	both	334517  Irradiation Apparatus Manufacturing  
339112	both	339112  Surgical and Medical Instrument Manufacturing  
339113	both	339113  Surgical Appliance and Supplies Manufacturing  
54138	both	541380  Testing Laboratories  
541711	2007	541711  Research and Development in Biotechnology  
6215	both	621511  Medical Laboratories  
6215	both	621512  Diagnostic Imaging Centers

High Tech (HT)

The following is our definition of other (i.e. Not IT/BT) High-tech:

211	both	211111	211111  Crude Petroleum and Natural Gas Extraction  
211	both	211112	211112  Natural Gas Liquid Extraction  
2211	both	221111	221111  Hydroelectric Power Generation  
2211	both	221112	221112  Fossil Fuel Electric Power Generation  
2211	both	221113	221113  Nuclear Electric Power Generation  
2211	both	221119	221119  Other Electric Power Generation  
2211	both	221121	221121  Electric Bulk Power Transmission and Control  
2211	both	221122	221122  Electric Power Distribution  
324	both	324110	324110  Petroleum Refineries  
324	both	324121	324121  Asphalt Paving Mixture and Block Manufacturing  
324	both	324122	324122  Asphalt Shingle and Coating Materials Manufacturing  
324	both	324191	324191  Petroleum Lubricating Oil and Grease Manufacturing  
324	both	324199	324199  All Other Petroleum and Coal Products Manufacturing  
3251	both	325110	325110  Petrochemical Manufacturing  
3251	both	325120	325120  Industrial Gas Manufacturing  
3251	both	325131	325131  Inorganic Dye and Pigment Manufacturing  
3251	both	325132	325132  Synthetic Organic Dye and Pigment Manufacturing  
3251	both	325181	325181  Alkalies and Chlorine Manufacturing  
3251	both	325182	325182  Carbon Black Manufacturing  
3251	both	325188	325188  All Other Basic Inorganic Chemical Manufacturing  
3251	both	325191	325191  Gum and Wood Chemical Manufacturing  
3251	both	325192	325192  Cyclic Crude and Intermediate Manufacturing  
3251	both	325193	325193  Ethyl Alcohol Manufacturing  
3251	both	325199	325199  All Other Basic Organic Chemical Manufacturing  
3252	both	325211	325211  Plastics Material and Resin Manufacturing  
3252	both	325212	325212  Synthetic Rubber Manufacturing  
3252	both	325221	325221  Cellulosic Organic Fiber Manufacturing  
3252	both	325222	325222  Noncellulosic Organic Fiber Manufacturing  
3253	both	325311	325311  Nitrogenous Fertilizer Manufacturing  
3253	both	325312	325312  Phosphatic Fertilizer Manufacturing  
3253	both	325314	325314  Fertilizer (Mixing Only) Manufacturing  
3253	both	325320	325320  Pesticide and Other Agricultural Chemical Manufacturing  
3255	both	325510	325510  Paint and Coating Manufacturing  
3255	both	325520	325520  Adhesive Manufacturing  
3255	both	325910	325910  Printing Ink Manufacturing  
3259	both	325920	325920  Explosives Manufacturing  
3259	both	325991	325991  Custom Compounding of Purchased Resins  
3259	both	325992	325992  Photographic Film, Paper, Plate, and Chemical Manufacturing  
3259	both	325998	325998  All Other Miscellaneous Chemical Product and Preparation Manufacturing  
33321	both	333210	333210  Sawmill and Woodworking Machinery Manufacturing  
33322	both	333220	333220  Plastics and Rubber Industry Machinery Manufacturing  
333291	both	333291	333291  Paper Industry Machinery Manufacturing  
333292	both	333292	333292  Textile Machinery Manufacturing  
333293	both	333293	333293  Printing Machinery and Equipment Manufacturing  
333294	both	333294	333294  Food Product Machinery Manufacturing  
333298	both	333298	333298  All Other Industrial Machinery Manufacturing  
3333	both	333311	333311  Automatic Vending Machine Manufacturing  
3333	both	333312	333312  Commercial Laundry, Drycleaning, and Pressing Machine Manufacturing  
3333	both	333313	333313  Office Machinery Manufacturing  
3333	both	333314	333314  Optical Instrument and Lens Manufacturing  
3333	both	333315	333315  Photographic and Photocopying Equipment Manufacturing  
3333	both	333319	333319  Other Commercial and Service Industry Machinery Manufacturing  
3336	both	333611	333611  Turbine and Turbine Generator Set Units Manufacturing  
3336	both	333612	333612  Speed Changer, Industrial High-Speed Drive, and Gear Manufacturing  
3336	both	333613	333613  Mechanical Power Transmission Equipment Manufacturing  
3336	both	333618	333618  Other Engine Equipment Manufacturing  
3339	both	333911	333911  Pump and Pumping Equipment Manufacturing  
3339	both	333912	333912  Air and Gas Compressor Manufacturing  
3339	both	333913	333913  Measuring and Dispensing Pump Manufacturing  
3339	both	333921	333921  Elevator and Moving Stairway Manufacturing  
3339	both	333922	333922  Conveyor and Conveying Equipment Manufacturing  
3339	both	333923	333923  Overhead Traveling Crane, Hoist, and Monorail System Manufacturing  
3339	both	333924	333924  Industrial Truck, Tractor, Trailer, and Stacker Machinery Manufacturing  
3339	both	333991	333991  Power-Driven Handtool Manufacturing  
3339	both	333992	333992  Welding and Soldering Equipment Manufacturing  
3339	both	333993	333993  Packaging Machinery Manufacturing  
3339	both	333994	333994  Industrial Process Furnace and Oven Manufacturing  
3339	both	333995	333995  Fluid Power Cylinder and Actuator Manufacturing  
3339	both	333996	333996  Fluid Power Pump and Motor Manufacturing  
3339	both	333997	333997  Scale and Balance Manufacturing  
3339	both	333999	333999  All Other Miscellaneous General Purpose Machinery Manufacturing  
3343	both	334310	334310  Audio and Video Equipment Manufacturing  
334411	both	334411	334411  Electron Tube Manufacturing  
334412	both	334412	334412  Bare Printed Circuit Board Manufacturing  
334414	both	334414	334414  Electronic Capacitor Manufacturing  
334415	both	334415	334415  Electronic Resistor Manufacturing  
334416	both	334416	334416  Electronic Coil, Transformer, and Other Inductor Manufacturing  
334417	both	334417	334417  Electronic Connector Manufacturing  
334418	both	334418	334418  Printed Circuit Assembly (Electronic Assembly) Manufacturing  
334419	both	334419	334419  Other Electronic Component Manufacturing  
334511	both	334511	334511  Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing  
334512	both	334512	334512  Automatic Environmental Control Manufacturing for Residential, Commercial, and Appliance Use  
334513	both	334513	334513  Instruments and Related Products Manufacturing for Measuring, Displaying, and Controlling Industrial Process Variables  
334514	both	334514	334514  Totalizing Fluid Meter and Counting Device Manufacturing  
334515	both	334515	334515  Instrument Manufacturing for Measuring and Testing Electricity and Electrical Signals  
334518	both	334518	334518  Watch, Clock, and Part Manufacturing  
334519	both	334519	334519  Other Measuring and Controlling Device Manufacturing  
334612	both	334612	334612  Prerecorded Compact Disc (except Software), Tape, and Record Reproducing  
3353	both	335311	335311  Power, Distribution, and Specialty Transformer Manufacturing  
3353	both	335312	335312  Motor and Generator Manufacturing  
3353	both	335313	335313  Switchgear and Switchboard Apparatus Manufacturing  
3353	both	335314	335314  Relay and Industrial Control Manufacturing  
33591	both	335911	335911  Storage Battery Manufacturing  
33591	both	335912	335912  Primary Battery Manufacturing  
33591	both	335931  Current-Carrying Wiring Device Manufacturing  
33593	both	335932  Noncurrent-Carrying Wiring Device Manufacturing  
33593	both	335991  Carbon and Graphite Product Manufacturing  
33599	both	335999  All Other Miscellaneous Electrical Equipment and Component Manufacturing  
3364	both	336411	336411  Aircraft Manufacturing  
3364	both	336412	336412  Aircraft Engine and Engine Parts Manufacturing  
3364	both	336413	336413  Other Aircraft Parts and Auxiliary Equipment Manufacturing  
3364	both	336414	336414  Guided Missile and Space Vehicle Manufacturing  
3364	both	336415	336415  Guided Missile and Space Vehicle Propulsion Unit and Propulsion Unit Parts Manufacturing  
3364	both	336419	336419  Other Guided Missile and Space Vehicle Parts and Auxiliary Equipment Manufacturing  
3369	both	336991	336991  Motorcycle, Bicycle, and Parts Manufacturing  
3369	both	336992	336992  Military Armored Vehicle, Tank, and Tank Component Manufacturing  
3369	both	336999	336999  All Other Transportation Equipment Manufacturing  
42341	both	423410	423410  Photographic Equipment and Supplies Merchant Wholesalers  
42342	both	423420	423420  Office Equipment Merchant Wholesalers  
42344	both	423440	423440  Other Commercial Equipment Merchant Wholesalers  
42345	both	423450	423450  Medical, Dental, and Hospital Equipment and Supplies Merchant Wholesalers  
42346	both	423460	423460  Ophthalmic Goods Merchant Wholesalers  
42349	both	423490	423490  Other Professional Equipment and Supplies Merchant Wholesalers  
486	both	486110	486110  Pipeline Transportation of Crude Oil  
486	both	486210	486210  Pipeline Transportation of Natural Gas  
486	both	486910	486910  Pipeline Transportation of Refined Petroleum Products  
486	both	486990	486990  All Other Pipeline Transportation  
5232	both	523210	523210  Securities and Commodity Exchanges  
54131	both	541310	541310  Architectural Services  
54132	both	541320	541320  Landscape Architectural Services  
54133	both	541330	541330  Engineering Services  
54134	both	541340	541340  Drafting Services  
54135	both	541350	541350  Building Inspection Services  
54136	both	541360	541360  Geophysical Surveying and Mapping Services  
54137	both	541370	541370  Surveying and Mapping (except Geophysical) Services  
5416	both	541611	541611  Administrative Management and General Management Consulting Services  
5416	both	541612	541612  Human Resources Consulting Services  
5416	both	541613	541613  Marketing Consulting Services  
5416	both	541614	541614  Process, Physical Distribution, and Logistics Consulting Services  
5416	both	541618	541618  Other Management Consulting Services  
5416	both	541620	541620  Environmental Consulting Services  
5416	both	541690	541690  Other Scientific and Technical Consulting Services  
541710	2002	541710	541710  Research and Development in the Physical, Engineering, and Life Sciences  
541712	2007	541712	541712  Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology)  
541720	both	541720	541720  Research and Development in the Social Sciences and Humanities  
5612	both	561210	561210  Facilities Support Services  
811211	both	811211	811211  Consumer Electronics Repair and Maintenance  
811219	both	811219	811219  Other Electronic and Precision Equipment Repair and Maintenance

Other HT Definitions

The references for the other High-Tech (HT) definitions are:

  • Hecker, Daniel E.(2005), "High-technology employment: a NAICS-based update", Monthly Labor Review (July): 57-72.
  • Paytas, Jerry and Berglund, Dan (2004), "Technology Industries and Occupations for NAICS Industry Data", Carnegie Mellon University, Center for Economic Development and State Science & Technology Institute.

Extending the paper

Once this 'draft' is complete we can consider some extentions. I am currently working on the VC Reputations data.

VC Reputations

VCs might use their reputations to certify their firms, or these variables might reflect VC experience (and potentially bargaining skill). We can calculate:

  • Avg or max number of previous acquisitions and/or IPOs conducted by VCs present in the last round of investment into the firm prior to the acquisition announcement.
  • The number of previous acquisitions and/or IPOs conducted by the lead VC (Note: The defacto standard method of determining the lead investor is to see which (if any) investor was present from the first round in every round until the last.)
  • Likewise for the average or dollar-invested weighted average of all investors in the port co.
  • Last round, lead investor, or average number of previous funds raised by investors, or their fund size or total cummulative firm size (i.e. summed across all funds) at the announcement.
  • Whether the VCs will raise a next fund (though this could actually be endogenuous with the CAR)

Outside Options

Outside options affect bargaining. A VC that is near to the end of its fund when it made it's last investment into the portfolio company (either in terms of dates or dollars), and particularly one that won't raise a next fund, will be unable to continue financing the portco without the acquisition and therefore has no good outside option with which to bargain. We could calculate how near last round investors are to the ends of their funds (and whether they are going to raise another) and take averages etc, to proxy for the outside option.

Bargaining Superstars

It might be the case that some VCs specialize in providing bargaining skills. We could test this hypothesis by:

  • Creating fixed-effect variables for the presence of each repeat VC in a portfolio company
  • Regressing these fixed-effects on the CARs and sorting the coefficient into quartiles/deciles etc.
  • Testing the hypothesis that firms in the top decile are more likely than expected to appear in a last round of financing.

VC Information Asymmetries

Implicit in our argument is that VCs mitigate the information asymmetries between themselves and their portfolio firms effectively. We can refine this argument to consider the degree to which a VC is likely to be informed about their porfolio firm.


We can use the road or great-circle distance from the lead investor to the portfolio company as a measure of the information acquisition cost. We could also create a cruder but likely more meaningful version of this by creating a binary variable to see whether the lead investor was within a 20-minute drive of the portfolio company (this is the so called '20 minute rule' - discussed as important for monitoring in Tian, 2006). Alternatively we could consider the nearest investor, or the average of the nearest investors across all rounds, etc.

I can get 2,500 requests per IP address (I can run 3+ concurrently from Berkeley) from the Google Maps api, with responses including driving distances and estimated driving times.

Active Monitoring

I can also determine whether the lead VC has a board seat at the portfolio company at the time of the acquisition, as well as the fraction of invested firms with board seats, and the total number of board sets held by VCs (or the fraction), using the identities of the executives. Though this will be particularly difficult in terms of data, I plan on doing it for another project with Toby Stuart anyway.